The windfall tax on petroleum oil was declared to be increased by the government, going from ₹1,700 per tonne to ₹3,200 per tonne as of February 3.
On diesel and aviation turbine fuel (ATF), commonly referred to as jet fuel, the windfall tax is still zero.
The government lowered the windfall tax on petroleum crude from ₹2,300/tonne to ₹1,700/tonne on January 16. The government reduced the windfall tax on petroleum crude oil from ₹1,300/tonne to ₹2,300/tonne on January 2.
India has levied a windfall tax on producers of crude oil from July 2022. This action was taken in reaction to private refiners’ desire to profit from favorable refining margins by exporting gasoline, diesel, and aviation fuel instead of selling locally. This tax is updated by the government every two weeks.
Windfall tax: what is it?
The windfall tax is adjusted every two weeks based on changes in the price of petroleum and other products internationally. At the moment, a barrel of crude oil is trading for about $82.
In reaction to the rising cost of crude oil, India first imposed the windfall tax in July 2022. Governments implement this tax when a sector of the economy suddenly makes large profits, usually as a result of an exceptional occurrence.
When the global benchmark price exceeds $75 per barrel, a windfall tax is levied on domestically produced petroleum. The fee applies to the export of diesel, aviation turbine fuel (ATF), and petrol when the product cracks or margins exceed $20 per barrel.
Product cracks or margins are the gap between the cost of crude oil (raw material) and the value of completed petroleum products.
The levy on domestic crude oil went to zero in the first half of April as international crude oil prices fell, but it was reinstated in the second half in tandem with rate increases.
Diesel taxes were dropped in April but returned in August. Similarly, ATF duty was decreased to zero in March but resumed in the second half of August. However, the original evaluation removed the fuel export tax.
The process include refining and turning crude oil produced from the ground or beneath the seabed into other fuels including gasoline, diesel, and ATF.
Key companies in fuel export in India include Reliance Industries Ltd, which operates the world’s biggest single-location oil refinery complex at Jamnagar, Gujarat, and Nayara Energy, which is funded by Rosneft.
India’s energy usage is three times higher than the world average. In 2022, India’s power consumption rose by 9% to 1320 TWh, following a 4% growth in 2021. In 2023, India’s total power usage per person was 1,327 kWh.
“Natural gas demand in India is expected to increase by 6 per cent in 2024, mainly supported by higher gas use in industry (including in the fertiliser sector) and stronger gas burn in the power sector amid the development of its national pipeline grid and city gas infrastructure,” the International Energy Agency (IEA) stated.
